After I gave a talk on a cruise ship about living and retiring in Panama, a number of folks came up front with questions. One gal had a lot of questions about transferring money to Panama, and taxes, and I jokingly said something like, “I have to watch what I say since you may be from the IRS!”
She, not joking, replied, “Yes I am. I’ve worked for the IRS my whole life.”
Now I grew up being taught that there are only two sure things in life, death and taxes, so I have nothing to hide. Maybe I wish I did have, but I don’t. But the very thought of her being an IRS agent caused me to do a quick rewind in my mind about what I’d said in my talk. Anyway, she continued, “Been there all my life and I can’t wait to get out! Maybe come to Panama. We’ve always been tough, but now they want us to be just plain vicious.”
So two recent posts caught my eye …
Come To The US and Get Arrested [Doesn’t apply, yet, to Panama’s former President now on the run and camping in Miami]
Lawyer Patrick Poulin says he helped clients set up offshore corporations in the Caribbean. And that’s what he was working on when he flew to Miami from the Turks and Caicos last year to meet with two Americans who wanted him to invest $2 million from a real estate deal.
Instead, they arrested him at the airport.
The clients, who went by the names of “Bob” and “Abraham,” according to Poulin, were really federal agents who were targeting him as part of a money laundering sting. Poulin eventually pleaded guilty to conspiracy and spent a year in prison.
“My lawyer told me I should have known,” Poulin, 42, said in a telephone interview from his home in Quebec.
The U.S. has since brought charges against at least four other businessmen working as “incorporators” — people who help clients establish offshore shell companies for tax planning or other reasons. The cases come amid a campaign by U.S. prosecutors to pursue suspect foreign incorporators in countries where corporate secrecy laws and the demands of extradition have stifled investigative efforts. The strategy: Lure the service providers out of their overseas havens to the U.S. with aggressive techniques such as undercover operations, wiretaps and stings, case filings show.
This new front in the long-running battle against money-laundering is opening as part of a broader U.S. crackdown on tax evasion. Taxpayers who seek amnesty under Internal Revenue Service disclosure programs are snitching on the incorporators, as well as naming Swiss banks and the bankers who aided them.
More than 50,000 U.S. taxpayers have avoided charges since 2009 in the offshore tax evasion crackdown; the program required them to disclose which banks and advisers helped them hide assets, according to the U.S. Internal Revenue Service.
“Leads have been pouring into the government with respect to offshore constructs that are available to help people do money laundering, and securities fraud and tax evasion, and all kinds of misdeeds,” said Miriam Fisher, global chair of Latham & Watkins LLP’s tax controversy practice and a former adviser to the assistant attorney general for the Justice Department’s tax division.
U.S. prosecutors and the FBI declined to comment on active cases and investigations.
The aggressive strategies are likely meant to send a message to incorporators that they’re being watched, said Jeffrey Neiman, a former federal prosecutor who worked on the groundbreaking 2009 tax evasion case against UBS Group AG and whose law firm represented an associate of Poulin.
“It plants the seed around the world that just maybe the government is listening to this conversation,” he said.
By luring incorporators to the U.S. to make an arrest, authorities also avoid often-complicated and lengthy extradition battles, and it’s easier to resolve a case, Neiman said.
About 30 Swiss advisers, for example, have been indicted in the U.S. since 2008, part of a broad probe of tax evasion and undeclared offshore accounts. At least 21 are still at large, among them, Josef Beck. The financial adviser was indicted in 2012 for allegedly conspiring with UBS to help Americans evade taxes. Yet he has never come to the U.S. to face the charges.
In July, authorities lured Michael Dodd, a manager for Panamanian corporate services provider High Secured, along with two associates to New York from overseas. They were arrested and accused of agreeing to launder about $2 million in stock fraud proceeds for an undercover investigator posing as a client.
Dodd was taken into custody at Manhattan’s Gramercy Tavern, according to the government, while Kenneth Landgaard, the provider of a private jet equipped with a safe, and James Robert Shipman Jr., an offshore incorporation specialist, were arrested after landing at a Long Island airport.
The men insisted the cash be packed into a Louis Vuitton bag because they thought real cops could never afford such an expensive item, and asked that conversations take place over encrypted software “so that the NSA can’t listen,” the government alleged in papers filed in Brooklyn federal court. A lawyer for Landgaard declined to comment. Lawyers for the other two men didn’t respond to requests for comment, and their clients haven’t yet entered a plea. All three were denied bail. The case is pending.
High Secured says on its website it provides offshore web-hosting and assists in “setting up complete corporate structures and merchant accounts to individuals and businesses to conduct their financial affairs in a private, secure, reliable, and tax-free environment.”
It was not named as a defendant in the criminal case. Representatives did not immediately respond to two calls placed to the company’s Panama City offices or e-mails seeking comment.
Prosecutors are moving up the chain and targeting even bigger operations. U.S. officials last year brought charges against Belize-based IPC Corporate Services founder Robert Bandfield, his employee Andrew Godfrey and several associates at brokerages and other firms. Prosecutors accused them of helping clients, including as many as 100 Americans, profit off of illegal stock trades and launder about $500 million.
An undercover investigator, posing as a corrupt stock promoter, paid the incorporator and his associates $9,600 for help setting up a corporate structure designed for illegal trading and money laundering, prosecutors said in court papers in Brooklyn. Bandfield and Godfrey told the investigator they might be able to return laundered funds on prepaid debit cards in $50,000 installments, the government alleged.
“We can make it so it’s not attached to you,” both men told the investigator during a 2013 meeting in Belize, according to prosecutors. Bandfield, 71, was arrested in September 2014 at the Miami airport on his way back to Belize. His lawyer declined to comment on the case. Bandfield has pleaded not guilty to federal charges. His case is pending. Godfrey, IPC and all but two of the associates haven’t appeared in the case and couldn’t be located for comment. One of the associates who answered the charges has denied wrongdoing; the other’s lawyer declined to comment on the charges.
The government’s crackdown comes as offshore tax shells proliferate. President Barack Obama said in a 2009 speech that one Cayman Islands address had as many as 12,000 corporations registered to it. Bloomberg News found the number was closer to 19,000.
Not all offshore incorporation is a smokescreen for illegal activity, of course. Some account holders are wealthy people who seek confidentiality because they could be targets of extortion, Fisher said.
Poulin, who is working on a book about his experiences, said he believed he was providing legitimate services offering clients privacy and help with minimizing taxes. He started out in incorporation work by handling real estate deals for “people coming down on vacation, people wanting to buy a condo,” he said. The discussions became, “let’s do some tax planning while we’re at it,” he said.
For the agents posing as clients, he set up an entity called, “Zero Exposure Inc.,” according to court documents. Following his arrest, Poulin said he was told he faced the possibility of 10 years in prison if convicted at trial for money laundering. With defense fees approaching $100,000, he decided to plead guilty to a lesser charge, he said.
He said he turned away people who were obviously criminals seeking help with funds associated with prostitution, drugs or terrorism.
“The line between unhappy creditor and fraud, it’s not super easy to define,” he said. [BLOOMBERG BUSINESS]
You might as well accept it, you can’t outsmart your greedy Uncle if you are a US citizen. Your choices: pay up or renounce your US citizenship, and even then Uncle Sam wants his pound of flesh. But be careful … sometimes the devil you don’t know is worse than the devil you do know. And try traveling the world on a passport from the Turks and Caicos who, tiny as they are, are feuding with each other and talking possible separation. Or your newly minted passport from Dominica. Good luck with that!
The US, in it’s infinite wisdom acting with a Divine [any divinity will do] mandate to impose its will on the rest of the world [Isn’t that something we fought wars with other countries about in past generations?] has imposed it’s standards of financial transactions pretty much on the rest of the world. Several years ago, in order to get a trade deal passed, Panama dropped trou, bent over and told the US it would play by US rules … up to a point. Now if you are a US citizen with an account in a Panama bank, that Panamanian bank MUST report to the US just like any bank in the US, all this onerous paperwork as only the US Fed can create, must be completed at the bank’s cost. No wonder some Panamanian banks refuse new accounts from US citizens and are asking long-time US customers to bank elsewhere. Try as it might, Panama just can’t get off some folks “Grey Lists” for money laundering.
Panama has made some key moves in order to get itself removed from the international grey list of nations that aren’t doing enough to fight money laundering, but these efforts may yet fall short.
The grey list is maintained by the Financial Action Task Force (FATF), an inter-governmental body that promotes anti-money laundering policies. Panama has been on the list since June 2014, alongside other countries like Afghanistan, Sudan, and Syria.
Panama developed an action plan with the FATF in order to remove this designation, which included a legislative proposal meant to strengthen government supervision over the financial sector. However, talks between the FATF and Panama have run into trouble lately.
One of the main sticking points in these ongoing negotiations has been Panama’s limited regulation of bearer shares. These are equity securities that are exclusively owned by whoever physically possesses them. Bearer shares are also highly vulnerable to money laundering, as those who issue them don’t keep records of the buyers, and selling them is as easy as delivering a piece of paper to someone else.
No one keeps tracks of this buying and selling process, which makes it extremely difficult to determine who owns the share. Before Congress passed reforms earlier this year, Panamanian law made it even more difficult, as the original owner of the bearer share was not required under any circumstance to turn it over to an authorized custodian such as a bank or an attorney.
Another impediment to Panama’s removal from the FATF grey list is the ease with which companies can be formed. Two or more adults of any nationality — even those who do not physically reside in Panama — can create a company in the country, according to Law 32 (pdf) in the Panamanian legal code. They can choose to register the company as either a persona natural (“natural person”), which means the company is essentially a person, associated with their identity document; or as a persona juridica (“legal entity”), a corporation that is identified through its registration with Panama’s Taxpayer Registry (RUC by its Spanish acronym).
However, corporations in Panama will often opt to register as a sociedad anonima (“anonymous society”), or bearer share corporation. This protects the confidentiality of the company’s assets, the identity of its owner or owners, and all business and banking transactions under Law 32.
While the founders of a sociedad anonima are required to sign documents identifying themselves as such before a Panamanian notary, laws firms in the country offer a convenient loophole. For a fee, the sociedad anonima can hire lawyers to sign the required paperwork before a notary in their place. As part of the deal, lawyers retain the ability to renounce their obligations to the company if their clients are not in Panama. All of this further conceals the identities of the company’s owners.
There are other regulations in Panama that may attract those looking to set up front companies. Companies that operate outside of Panama do not need to obtain a license for their foreign business operations. Nor is the process of registering a company in Panama that expensive: according to the Ministry of Commerce and Industry’s eRegulations website, the average total cost of the registration process is slightly under $1,000.
Sociedad anonimas provide a number of other benefits to corporations, which can be readily exploited for money laundering purposes. These include:
1.) Minimal reporting requirements. Corporations do not need to file tax returns or have their accounts audited.
2.) Attractive tax exemptions. The Panamanian government does not require corporations to pay income taxes on international transactions; nor must corporations pay capital gain, interest income, and sales tax, among others. Corporations only need to pay an annual franchise tax of approximately $300 to the Panamanian government to remain operational.
3.) Confidentiality. As the name suggests, sociedades anonimas offer a corporation and its beneficial owners complete confidentiality — they don’t even need to have a physical address in Panama. This confidentiality is also due to the fact that the beneficial owners’ names and personal details are not filed with the Panamanian Public Registry, and documentation at the Public Registry does not need to be modified to reflect any changes in ownership.
As a result, only the sociedad anonima’s directors know the identities of the actual owners, since they maintain the sociedad anonima’s records and distribute the share certificates. However, under Panamanian corporate law, corporations do not need to keep records of any transactions. And even if the records exist, corporations are not required to disclose them to foreign governments and can keep the records outside of Panama.
Money Laundering, Financial Gain, and Panama’s Shipping Industry
Another sticking point between the FATF and Panama is lax regulations over the shipping industry. While Panama’s shipping registration process has helped create the world’s largest commercial shipping fleet, it has also made the shipping industry highly conducive to money laundering and tax evasion. Panama maintains an open shipping registry, which means that any country in the world can register a ship under the Panamanian flag. According to a 2014 United Nations report, about 21 percent of all commercial ships registered in Panama are foreign-owned.
The Panama Maritime Authority also offers a host of other incentives for ships to join the Panamanian shipping registry. These include full access to the system of sociedades anonimas, no minimum tonnage requirements, and lax regulations for vessels older than 20 years, which simply need to pass an inspection before becoming operational. Additionally, ship owners that change their flag to the Panamanian flag do not need to have their ship re-inspected if they have valid safety and tonnage certificates when registering.
While Panama’s shipping registration process has helped create the world’s largest commercial shipping fleet, it has also made the shipping industry highly conducive to money laundering and tax evasion.
There are a slew of other benefits available — including the fact that the process of registering a ship in Panama can be completed within a day — but one stands out above the rest: foreign shipping corporations do not need to pay income taxes to the Panamanian government.
These perks have enabled Panama to rake in around $150 million annually in shipping registration and renewal fees. Once benefits for businesses and indirect income are factored in, total revenue jumps to an estimated $300 million annually.
However, Panama’s lax shipping registration procedures have also earned it international condemnation for ignoring its responsibility to investigate allegations of corruption in favor of getting more ships registered. The country has also derisively been classified as a “flag of convenience” country, a dubious distinction its shares with the likes of North Korea, Burma, and Liberia.
More worrying still is that Panama’s current registration SA system allows ship owners to operate under a veil of anonymity, as it is virtually impossible to determine a ship’s actual owner or owners, which allows them to engage in unlawful acts with near impunity. Furthermore, due to the sheer size of its shipping fleet and its open registry, Panama has fallen prey to what the Global Financial Integrity organization calls “Illicit Financial Flows (IFFs),” in which importers and exporters manipulate trade invoices to avoid paying customs duties, valued-added taxes (VAT), or income taxes on their goods. From 2003 to 2012 (the most recent year in which data is available), export and import under-invoicing amounted to an estimated $383 million in lost revenue for Panama.
What Next for Panama?
Panama has arguably made some significant strides in its campaign to get off the FATF grey list by 2016. In May 2015, Panama’s Congress implemented a law meant to comply with FATF regulations. Known as Law 47, it strengthens oversight of current and future shareholders, requiring them to hand over their shares for safekeeping to an authorized custodian. These include a regulated bank, trustee, stock brokerage firm, or pre-approved lawyers.
The law also laid out stricter regulations for foreign shareholders. They must use foreign banks or other financial intermediaries that are either licensed, operate in FATF member countries, or are registered with Panama’s Banking Supervisory Authority; this essentially immobilizes bearer shares by preventing the shares from moving around freely.
Panama’s Congress also passed Law 23 in April 2015, which included other measures meant to combat money laundering and the possible financing of terrorism. This sweeping law also seeks to improve the coordination between the financial and security sector, in order to facilitate information sharing.
The law also establishes oversight over non-financial companies in real estate, the gaming industry, money transfer (remittances), construction, as well as the Baru Free Zone, the Colon Free Zone, Panama Pacifico and other free trade zones that engage in foreign commerce.
In addition, Panama formed an Anti-Money Laundering and Financing of Terrorism Strategic Unit, which will fall under the Ministry of Economy and Finance. The country also developed a risk analysis plan that highlighted various issues that need to be systematically evaluated, including the banking sector, insurance industry and the Colon Free Zone, among other areas.
However, while the FATF has acknowledged Panama’s advances in fighting money laundering, the inter-governmental agency says there is still significant room for improvement. In a June 2015 memorandum, the FATF identified seven deficiencies that Panama has yet to address, many of which have to do with the legal framework for dealing with money laundering. The FATF has also asserted that of the 40 recommendations that the organization issued in 2012, Panama only fully complies with one of them.
There have been other troubling signs that it might not be so easy for Panama to shed its notoriety as a money laundering hub. Authorities recently awarded lucrative contracts to the Odebrecht Group, a scandal-plagued Brazilian conglomerate whose CEO is currently in prison on money laundering charges. One of the most influential members of President Juan Carlos Varela’s cabinet runs a law firm, Mossack Fonseca, which is reportedly one of the most prolific creators of shell companies in the world. The firm also has alleged ties to associates of Muammar Gaddafi, Robert Mugabe, and Bashar al-Assad (the former leader of Libya, the president of Zimbabwe, and the president of Syria, respectively) as well as the recent FIFA scandal. Meanwhile, several real estate developers — which a leaked US Embassy cable linked to money laundering and other illicit activities — continue to operate in the country.
Ultimately, Panama will determine whether it leaves the grey list or not, and only skillful maneuvering by its government will allow it to safely navigate the treacherous waters of international finance and commerce without sinking its own economic self-interests. [INSIGHT CRIME]
The current Panama government is working hard to dispel the notion that Panama is a haven for money laundering, is trying to go against Latin American tradition seeking true transparency, more carefully regulating financial sectors, while at the same time maintaining its own sovereignty. Panama wants to, and needs to collect taxes.